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Michaels Stores, Inc. v. Sun Life Assurance Co. of Canada

United States District Court, D. Minnesota

September 24, 2019

Michaels Stores, Inc., Plaintiff,
Sun Life Assurance Company of Canada, Defendant.

          Mark W. Vyvyan, Jessica R. Sharpe, and Christian V. Hokans, Fredrikson & Byron, P.A., Minneapolis, MN, for Plaintiff Michaels Stores, Inc.

          Aaron Mills Scott and Peter D. Stiteler, Fox Rothschild LLP, Minneapolis, MN for Defendant Sun Life Assurance Company of Canada.


          Eric C. Tostrud United States District Judge

         Michaels Stores brought this case to obtain a declaration of its rights under a shopping-center lease with Sun Life Assurance Company of Canada. Under the lease, the extended absence of an "Anchor Tenant" from the shopping center gave Michaels the option to pay a lower monthly rent. The lease calls this "Alternative Rent." The issue is whether the lease may be understood to permit Michaels to exercise this option retroactively-here, more than two years after the option was triggered and after Michaels paid rent at the regular amount throughout that time-so that Michaels may recoup $254, 583.05 of rent it paid to Sun Life. Sun Life argues that the lease cannot reasonably be interpreted this way, and it seeks dismissal of Michaels's complaint under Federal Rule of Civil Procedure 12(b)(6). Sun Life's motion will be granted because the interpretation of the lease Michaels advances is not reasonable and, therefore, not plausible.


         The commercial lease that is the subject of this dispute is, like many commercial leases, lengthy and in some places relatively complex. It helps to start by describing several basic background facts and lease terms at a high level. Michaels entered the lease in 2004; the property that is the subject of the lease is retail space in a shopping center in Eden Prairie, Minnesota. Compl. ¶ 10 [ECF No. 1]; Compl. Ex. A [ECF No. 1-2 at 2-121]. (From this point, Exhibit A to the Complaint will be cited simply as "Lease, " and unless otherwise specified, all citations are to Exhibit C to the Lease, entitled "General Lease Provisions." See also Lease § 17.11.). Sun Life later acquired the shopping center and assumed the role of landlord under the lease. Compl. ¶ 11; see also Lease § 17.2 ("Heirs, Successors and Assigns" clause). Relevant here, the lease contains an "On-Going Co-Tenancy" provision requiring that certain premises within the shopping center "be open and continuously operated by an Anchor Tenant." Compl. ¶ 12; Lease § 16.3. The lease defines "Anchor Tenant" by reference to several attributes one would expect of a large, well-known national or regional retail store. Lease § 16.3. If an Anchor Tenant is closed for 120 days and various other conditions are satisfied, then the lease gives Michaels the option to pay "Alternative Rent, " an amount set at 3% of Michaels's gross sales for the preceding calendar month and intended to be less than Michaels's ordinary fixed monthly rent (which the lease calls "Minimum Rent"). Id; see also Mem. in Opp'n at 2 [ECF No. 14] ("Co-tenancy clauses requiring that certain prime tenants stay in continuous operation are common in shopping center leases." (citing 1 Law of Real Estate Financing § 5:70)).

         In late July 2016, an Anchor Tenant, Sports Authority, closed. Compl. ¶ 15 (alleging that Sports Authority closed "on or around July 28, 2016"); see also Id., Ex. C [ECF No. 1-2 at 125] (attaching letters from Sun Life asserting that "Sports Authority vacated its space on July 31, 2016"). The Parties agree that Sports Authority's closure resulted in the non-satisfaction of the On-Going Co-Tenancy Requirement. Compl. ¶ 15; Mem. in Supp. at 2-3 [ECF No. 8]. Michaels alleges its "corporate real estate department became aware for the first time that the On-Going Co-Tenancy Requirement was not satisfied" in January 2019, Mem. in Opp'n at 2, and that Michaels wrote to Sun Life on January 14, 2019, declaring its intent to invoke the Alternative Rent option "effective July 28, 2016, " Compl. Ex. B [ECF No. 1-2 at 123]. Up to that point, Michaels had continued to pay Minimum Rent for the two and a half years after the Anchor Tenant had closed and vacated the space, through and including January 2019. Compl. ¶ 16. Michaels sought to retroactively pay Alternative Rent for 14 months from November 2016 through December 2017 by offsetting amounts from future rent payments. See Compl. Ex. F [ECF No. 1-2 at 133]; Compl. Ex. B. In response, Sun Life asserted that Michaels was not entitled to pay Alternative Rent because it was "not credible that the Sports Authority closure had a material adverse effect on the Michaels store" and that "by waiting so long to respond to the closure, Michaels waived whatever rights it had under the Lease[.]" Compl. Ex. C; see Compl. ¶ 18. Michaels paid Minimum Rent for February and March 2019 but maintained that it was entitled to recover "any amounts overpaid ... as a result of the non-satisfaction of the On-Going Co-Tenancy Requirement." Compl. Ex. E [ECF No. 1-2 at 129-31]; see Compl. ¶¶ 19-20.

         Michaels brought this case in April 2019, seeking a declaration that it was entitled to pay Alternative Rent for at least 14 months, and thus was entitled to $254, 583.05 in reimbursement (the asserted difference between the Minimum Rent it actually paid for November 2016 through December 2017 and the lower Alternative Rent it wishes to pay). See Compl. ¶¶ 21-26; Compl. Ex. F. There is diversity jurisdiction because the amount in controversy exceeds $75, 000, and the Parties are of diverse citizenship. Michaels is a Delaware corporation with a principal place of business in Texas, and Sun Life is a Canadian corporation with its principal place of business in the United States in Massachusetts. Compl. ¶¶ 6-7.



         Several settled legal rules govern consideration of Sun Life's Rule 12(b)(6) motion and interpretation of the lease. The complaint's factual allegations and reasonable inferences from those allegations must be accepted as true. Gorog v. Best Buy Co., 760 F.3d 787, 792 (8th Cir. 2014). The complaint must "state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). "As this action is in federal court based on diversity of citizenship, state law governs substantive law issues." Paine v. Jefferson Nat 7 Life Ins. Co., 594 F.3d 989, 992 (8th Cir. 2010) (citation omitted); see also Erie R. Co. v. Tompkins, 304 U.S. 64, 78 (1938). The Parties agree that Minnesota law governs here. See Mem. in Supp. at 3; Mem. in Opp'n at 11. The basis for this understanding can be found in the lease. It contains a choice-of-law clause specifying that the contract will be governed by and construed in accordance with the laws of the state in which the Shopping Center is located. Lease § 17.3. Based on this provision and the fact that the Parties agree Minnesota law governs, Minnesota law will be applied here. See Neth. Ins. Co. v. Main St. Ingredients, LLC, 745 F.3d 909, 913 (8th Cir. 2014) ("Because the parties do not dispute the choice of Minnesota law, we assume, without deciding, Minnesota law applies . . . .").

         As for the rules governing contract interpretation under Minnesota law, the Minnesota Supreme Court has said that:

"[T]he primary goal of contract interpretation is to determine and enforce the intent of the parties." Motorsports Racing Plus, Inc. v. Arctic Cat Sales, Inc., 666 N.W.2d 320, 323 (Minn. 2003). Interpretation of unambiguous contracts is a question of law for the court, as is the determination that a contract is ambiguous. Denelsbeck v. Wells Fargo & Co., 666 N.W.2d 339, 346 (Minn. 2003). The terms of a contract are ambiguous if they are susceptible to more than one reasonable interpretation. Id. A contract's terms are not ambiguous simply because the parties' interpretations differ. See Id . at 347 (concluding that the parties' dispute was due to conflicting interpretations of a contract's requirements, rather than the contract being ambiguous).

Staffing Specifix, Inc. v. TempWorks Mgmt. Servs., Inc., 913 N.W.2d 687, 692 (Minn. 2018). "If the court determines that the contract language is unambiguous-meaning it has only one reasonable interpretation-it will give effect to that language" and determine the parties' intent "from the language of the written contract alone." Minn. Vikings FootballStadium, LLC v. Wells Fargo Bank, Nat'lAss'n,193 F.Supp. 3d 1002, 1011 (D. Minn. 2016). "If the district court determines that a contract is ambiguous, it may admit parol, or extrinsic, evidence of the parties' intent." Staffing Specifix, Inc., 913 N.W.2d at 692 (citations omitted). "Only if a preponderance of the evidence does not prove the parties' intent ...

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